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Domino's Pizza Announces Second Quarter 2006 Results

ANN ARBOR, Mich., July 20 /PRNewswire-FirstCall/ -- Domino's Pizza, Inc. (NYSE: DPZ), the recognized world leader in pizza delivery, today announced results for the second quarter ended June 18, 2006. Diluted EPS was $0.39, up nearly 15% from year ago levels. Diluted EPS includes the impact of reduced share counts and a tax benefit. International same store sales grew 5.7% during the quarter, marking the 50th consecutive quarter of international same store sales growth.

    Second Quarter Highlights:

    (dollars in millions,
     except per share data)                  Second           Second
                                             Quarter          Quarter
                                             of 2006          of 2005
    Revenues                                  $327.7           $347.0
    Net income                                 $24.5            $23.1
    Weighted average diluted shares       63,340,062       67,567,250
    Diluted earnings per share                 $0.39            $0.34


    - Revenues were down 5.5% for the second quarter compared to the prior
      year period, due primarily to lower domestic distribution revenues.
      Distribution revenues decreased 9.7% because of lower food prices,
      primarily cheese, and lower volumes due to a decrease in domestic
      franchise same store sales.  The average cheese block price per pound
      was $1.17 in the second quarter of 2006, down 22.5% from $1.51 in the
      second quarter of 2005.  Revenues from international operations
      increased 6.3% on strong retail sales growth.
    - Net income was up 6.0% for the second quarter compared to the prior year
      period, driven primarily by strong performance in our international
      business, lower cheese prices and a tax benefit of approximately $2.9
      million recognized as a result of the sale of our Company-owned
      operations in France and the Netherlands.  Net income was negatively
      pressured by a 4.9% decrease in domestic same store sales growth,
      increased interest expense and lower distribution volumes related to
      lower domestic same store sales.
    - Diluted EPS was $0.39 for the second quarter, up 14.7% from the prior
      year period, driven by both an increase in net income and a reduction in
      diluted shares outstanding primarily due to the positive effect on share
      counts as a result of our $145.0 million share repurchase in the first
      quarter of 2006.  Diluted EPS included a $0.05 per share benefit from
      the aforementioned tax item.

                    Domestic
                    Company-    Domestic      Total
                     owned      Franchise   Domestic   International
                    Stores       Stores      Stores       Stores       Total
    Store counts
     Store count at
      March 26,
      2006            580        4,506        5,086       3,038       8,124
     Openings           -           31           31          60          91
     Closings          (1)         (13)         (14)        (11)        (25)
     Transfers         (2)           2            -           -           -
     Store count at
      June 18,
      2006            577        4,526        5,103       3,087       8,190
     Second quarter
      net growth       (3)          20           17          49          66
     First two
      quarters
      net growth       (4)          15           11         100         111
     Trailing 4
      quarters net
      growth            8           66           74         238         312


                                                      Second         Second
                                                      Quarter        Quarter
                                                      of 2006        of 2005
    Same store sales growth (versus prior
     year period)
     Domestic Company-owned stores                     (3.2)%        + 8.6%
     Domestic franchise stores                         (5.2)%        + 6.6%
     Domestic stores                                   (4.9)%        + 6.9%
     International stores                             + 5.7%         + 7.8%

    Global retail sales growth (versus prior
     year period)
     Domestic stores                                   (3.9)%        + 9.1%
     International stores                            + 11.5%        + 23.4%
     Total                                            + 1.3%        + 13.5%


    - The decrease in domestic same store sales was due primarily to stronger
      promotion performance and related higher same store sales comparisons in
      the prior year.
    - The 5.7% increase in international same store sales marks the 50th
      consecutive quarter of positive international same store sales growth.
    - Global retail sales increases were driven primarily by increases in
      international same store sales and worldwide store counts.

David A. Brandon, Domino's Chairman and Chief Executive Officer, said: "Our sales comparisons in the first half of 2006 were a significant challenge. We were lapping extraordinary prior-year sales performance while operating in a much weaker consumer-spending environment. We are not happy with our sales performance during the first half of this year and we are working hard to address this situation. However, it is valid to note that this rather lackluster sales environment demonstrates the resiliency of our business model. Despite difficulties in growing our top line during this timeframe, our bottom line continued to grow, and we continued to generate strong cash flows. This steady and reliable cash flow enables us to consistently deliver for our shareholders by utilizing a capital structure that appropriately leverages the Company; paying an industry-leading dividend; and making opportunistic share repurchases."

Brandon continued, "The ultimate test of any business model is how it performs in both good times and tough times. I am proud of our bottom-line performance during the first half of the year in the face of a difficult market environment and I have a great deal of confidence our franchisees and team members will work together to re-establish our sales momentum in the second half of the year."

Conference Call Information

The Company plans to file its quarterly report on Form 10-Q this morning. Additionally, as previously announced, Domino's Pizza, Inc. will hold a conference call today at 11 a.m. (Eastern) to review its second quarter 2006 financial results. The call can be accessed by dialing (888) 306-6182 (U.S./Canada) or (706) 634-4947 (International). Ask for the Domino's Pizza conference call. The call will also be web cast at www.dominos.com. If you are unable to participate on the call, a replay will be available through midnight August 20, 2006 by dialing (800) 642-1687 (U.S./Canada) or (706) 645- 9291 (International), Conference ID 3419966. The web cast will be archived for 30 days on www.dominos.com.

Company Sells Operations in France and the Netherlands

On May 1, 2006, the Company signed a stock purchase agreement to sell its Company-owned operations in France and the Netherlands to our master franchise group in Australia and New Zealand. The sale closed subsequent to the second fiscal quarter ended June 18, 2006.

During the second quarter, the Company recognized a tax benefit of approximately $2.9 million relating to the sale of these operations. The Company will account for the remainder of the transaction during the third fiscal quarter ending September 10, 2006 and does not expect the transaction to have a material impact on its financial condition or results of operations.

    Liquidity

    As of June 18, 2006, the Company had:
    - $788.8 million in total debt,
    - $23.7 million of cash and cash equivalents, and
    - borrowings of $93.7 million available under its $125.0 million revolving
      credit facility (net of letters of credit issued of $31.3 million.)

The Company has repaid more than $45.0 million of debt year-to-date, including $10.0 million in the second quarter. The Company also borrowed $100.0 million in the first quarter which, along with cash from operations, was used to repurchase and retire $145.0 million of common stock from its largest shareholder.

The Company's average borrowing rate for the second quarter of 2006 was 6.4%. The Company is not required to make the next scheduled senior credit facility principal payment of $1.3 million until June 30, 2007. The Company is not required to make principal payments on its senior subordinated notes until 2011.

The Company incurred $9.4 million in capital expenditures during the first two quarters of 2006. The Company incurred $15.2 million in capital expenditures during the first two quarters of 2005 attributable to increased spending related to the renovation of the Company's headquarters.

Comments on Regulation G

In addition to the GAAP financial measures set forth in this Press Release, the Company has included certain non-GAAP financial measures within the meaning of Regulation G, including metrics commonly used in the quick- service restaurant industry that are important to understanding Company performance.

The Company uses "Global retail sales" to refer to total worldwide retail sales at Company-owned and franchise stores. Management believes global retail sales information is useful in analyzing revenues, because franchisees pay royalties that are based on a percentage of franchise retail sales. Management reviews comparable industry global retail sales information to assess business trends and to track the growth of the Domino's Pizza(R) brand. In addition, distribution revenues are directly impacted by changes in domestic franchise retail sales. Retail sales for franchise stores are reported to the Company by its franchisees and are not included in Company revenues.

The Company uses "Same store sales growth," calculated including only sales from stores that also had sales in the comparable period of the prior year. International same store sales growth is calculated similarly to domestic same store sales growth. Changes in international same store sales are reported on a constant dollar basis which reflects changes in international local currency sales.

About Domino's

Founded in 1960, Domino's Pizza is the recognized world leader in pizza delivery. Domino's is listed on the NYSE under the symbol "DPZ." Through its primarily franchised system, Domino's operates a network of 8,190 franchised and Company-owned stores in the United States and more than 50 countries. The Domino's Pizza(R) brand, named a Megabrand by Advertising Age magazine, had global retail sales of nearly $5.0 billion in 2005, comprised of $3.3 billion domestically and $1.7 billion internationally. Domino's Pizza was named "Chain of the Year" by Pizza Today magazine, the leading publication of the pizza industry and is the "Official Pizza of NASCAR(R)." More information on the Company, in English and Spanish, can be found on the web at www.dominos.com.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relating to our anticipated profitability and operating performance reflect management's expectations based upon currently available information and data. However, actual results are subject to future risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that can cause actual results to differ materially include: the uncertainties relating to litigation; consumer preferences, spending patterns and demographic trends; the effectiveness of our advertising, operations and promotional initiatives; our ability to retain key personnel; new product and concept developments by Domino's and other food-industry competitors; the ongoing profitability of our franchisees and the ability of Domino's and our franchisees to open new restaurants; changes in food prices, particularly cheese, labor, utilities, insurance, employee benefits and other operating costs; the impact that widespread illness or general health concerns may have on our business and the economy of the countries in which we operate; severe weather conditions and natural disasters; changes in our effective tax rate; changes in government legislation and regulations; adequacy of our insurance coverage; costs related to future financings and changes in accounting policies. Further information about factors that could affect Domino's financial and other results is included in the Company's filings with the Securities and Exchange Commission. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

                               TABLES TO FOLLOW


                    Domino's Pizza, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Income
                                 (Unaudited)

                                       Fiscal Quarter Ended
                                         % of                        % of
                           June 18,     Total        June 19,       Total
                            2006       Revenues        2005        Revenues
    (In thousands, except
     per share data)
    Revenues:
    Domestic Company-owned
     stores                $90,225                   $91,674
     Domestic franchise     35,762                    37,237
     Domestic distribution 170,048                   188,225
     International          31,706                    29,818
    Total revenues         327,741       100.0%      346,954       100.0%

    Cost of sales:
     Domestic Company-owned
      stores                71,230                    73,093
     Domestic distribution 151,605                   170,213
     International          16,141                    15,249
    Total cost of sales    238,976        72.9%      258,555        74.5%
    Operating margin        88,765        27.1%       88,399        25.5%

    General and
     administrative         42,366        12.9%       42,251        12.2%
    Income from operations  46,399        14.2%       46,148        13.3%

    Interest expense, net   12,776         3.9%       10,486         3.0%
    Income before provision
     for income taxes       33,623        10.3%       35,662        10.3%

    Provision for income
     taxes                   9,117         2.8%       12,541         3.6%
    Net income             $24,506         7.5%      $23,121         6.7%

    Earnings per share
     - diluted               $0.39                     $0.34


                    Domino's Pizza, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Income
                                 (Unaudited)

                                    Two Fiscal Quarters Ended
                                         % of                       % of
                           June 18,      Total       June 19,       Total
                            2006        Revenues      2005         Revenues
    (In thousands, except
     per share data)
    Revenues:
     Domestic Company-owned
      stores              $186,703                  $189,900
     Domestic franchise     73,892                    76,470
     Domestic distribution 352,436                   390,042
    International           62,364                    60,210
    Total revenues         675,395       100.0%      716,622       100.0%

    Cost of sales:
     Domestic Company-owned
      stores               146,436                   151,232
     Domestic
      distribution         314,248                   352,323
     International          31,652                    31,655
    Total cost of sales    492,336        72.9%      535,210        74.7%
    Operating margin       183,059        27.1%      181,412        25.3%

    General and
     administrative         82,769        12.3%       85,215        11.9%
    Income from
     operations            100,290        14.8%       96,197        13.4%

    Interest expense, net   24,485         3.6%       20,889         2.9%
    Income before provision
     for income taxes       75,805        11.2%       75,308        10.5%

    Provision for income
     taxes                  25,147         3.7%       27,507         3.8%
    Net income             $50,658         7.5%      $47,801         6.7%

    Earnings per share
     - diluted               $0.77                     $0.69


                    Domino's Pizza, Inc. and Subsidiaries
                    Condensed Consolidated Balance Sheets

                                              June 18, 2006    January 1, 2006
    (In thousands)                             (Unaudited)
    Assets
    Current assets:
      Cash and cash equivalents                  $23,712           $66,919
      Accounts receivable                         69,243            74,437
      Inventories                                 20,207            24,231
      Advertising fund assets, restricted         23,946            35,643
      Other assets                                26,934            20,116
    Total current assets                         164,042           221,346

    Property, plant and equipment, net           126,382           131,455

    Other assets                                 104,604           108,273

    Total assets                                $395,028          $461,074

    Liabilities and stockholders' deficit
    Current liabilities:
      Current portion of long-term debt             $316           $35,304
      Accounts payable                            52,278            60,330
      Advertising fund liabilities                23,946            35,643
      Other accrued liabilities                   83,349            86,108
    Total current liabilities                    159,889           217,385

    Long-term liabilities:
      Long-term debt, less current portion       788,446           702,358
      Other accrued liabilities                   55,805            52,316
    Total long-term liabilities                  844,251           754,674

    Total stockholders' deficit                 (609,112)         (510,985)

    Total liabilities and stockholders'
     deficit                                    $395,028          $461,074


                    Domino's Pizza, Inc. and Subsidiaries
               Condensed Consolidated Statements of Cash Flows
                                 (Unaudited)

                                                  Two Fiscal Quarters Ended
                                                    June 18,       June 19,
                                                      2006           2005
    (In thousands)
    Cash flows from operating activities:
     Net income                                      $50,658        $47,801
     Adjustments to reconcile net income to net
      cash flows provided by operating activities:
      Depreciation and amortization                   14,974         14,686
      Amortization of deferred financing costs
       and debt discount                               1,580          1,450
      Provision (benefit) for deferred income taxes   (2,268)           579
      Non-cash compensation expense                    2,090          1,040
      Other                                                6            923
      Changes in operating assets and liabilities    (13,116)        (7,545)
    Net cash provided by operating activities         53,924         58,934

    Cash flows from investing activities:
     Capital expenditures                             (9,447)       (15,210)
     Other                                             1,162          2,486
    Net cash used in investing activities             (8,285)       (12,724)

    Cash flows from financing activities:
     Repurchase of common stock                     (145,000)       (75,000)
     Proceeds from issuance of long-term debt        100,000         40,000
     Repayments of long-term debt and capital
      lease obligation                               (45,128)       (50,136)
     Tax benefit from exercise of stock options        3,666         12,664
     Other                                            (2,468)        (3,479)
    Net cash used in financing activities            (88,930)       (75,951)

    Effect of exchange rate changes on cash
     and cash equivalents                                 84           (151)

    Decrease in cash and cash equivalents            (43,207)       (29,892)

    Cash and cash equivalents, at beginning
     of period                                        66,919         40,396

    Cash and cash equivalents, at end of period      $23,712        $10,504

SOURCE Domino's Pizza, Inc.

CONTACT:
Lynn Liddle,
Executive Vice President, Communications and Investor Relations of Domino's Pizza, Inc.,
+1-734-930-3008
Web site: http://www.dominos.com